Two of the largest NAND flash memory chip producers are ramping up merger talks as the global memory market slumps. Despite being in talks since 2021, the two have failed to reach an agreement. However, economic realities may be helping smooth the process.
A merger would give the combined company control over a third of the global NAND flash market. In turn, Kioxia and Western Digital will be better able to compete with Samsung, which also controls roughly a third of the global market.
News of renewed talks between Kioxia, formerly part of Toshiba, and Western Digital was first reported by Reuters, citing multiple inside sources who declined to be identified. The two firms are reportedly speeding up the pace of merger talks and outlining specific details for combining.
The current plan would result in a merged entity owned 43% by Kioxia and 37% by Western Digital with the remainder of ownership held by current stakeholders. Of course, these numbers could change dramatically before a final deal is made. Neither company has officially commented on the details of merger discussions or their progress.
Notably, Western Digital has been considering another move of its own—splitting off its flash memory business from its hard drive division. Should this occur, it would take place before a merger with Kioxia. The U.S. firm’s hard drive segment would then continue operating independently of the newly merged entity.
As for the other side, economic tensions have muddied the waters. Toshiba sold Kioxia in 2018 for a massive $18 billion. However, the Japanese company still holds a nearly 41% share of Kioxia. Offloading this share may be a driving force for refreshing merger talks.
Toshiba recently pointed to Kioxia as a harmful factor to its valuation amid a proposed $15 billion buyout offer from Japan Industrial Partners (JIP). The memory maker felt the offer was too low to recommend to stakeholders. So, it will be interesting to see whether a merger affects Toshiba’s larger buyout discussions.
According to Reuter’s sources, should the two memory manufacturers come to an agreement, a public stock listing might not be far behind. Kioxia has avoided this since its sale thanks to the deteriorating flash memory market. But being able to compete on a market share level with Samsung will bolster the new combined entity should it be taken public.
Although talks may be advancing, the deal is far from done. One major roadblock will be the seemingly inevitable anti-trust scrutiny. Since a merger would instantly make the combined entity one of the largest in the memory chip market, eyes from the U.S. and other countries will be on the deal.
It’s also worth noting that valuation discrepancies have been a major factor preventing a merger from happening to this point. Amid the current turmoil in the memory market, nailing down valuations is even trickier. If this continues to be a point of tension between Kioxia and Western Digital, a deal will be difficult to reach.
However, since the two are already collaborating to produce NAND flash memory chips in Japan, the discussions will likely be largely positive. If both sides want to get a deal done—and they should given their increased vulnerability to market volatility compared to manufacturers also producing DRAM chips—a merger may not be out of the question in the coming months.